That phrase again. Digital transformation. The worry is that it’s starting to become wildly popular, and there isn’t a deep enough understanding of what it requires from a business, from its leadership, and from its people.
Without question, the world has changed dramatically. The pandemic forced the accelerated digitalisation of organisations over the last three years, putting digital transformation on the centre stage.
Whilst digital’s indispensable place within the future of all organisations is well appreciated, between 70% and 95% of digital transformation projects fail (according to data gathered by McKinsey, BCG, KPMG and Bain & Company). This is partly due to a how it is framed and interpreted. Perhaps consider an alternative framing, “digital reinvention”, to reset perspective.
This phrase emphasises the idea that organisations must not simply adapt to new digital technologies, but must fundamentally rethink and reinvent their operations, processes, and strategies in order to thrive in the digital age. This phrase also suggests that digital transformation is not just a one-time event, but an ongoing process of continuous evolution and innovation.
It’s worth diving further into the main reasons behind the failure statistics, such that we may lend the lessons without necessarily paying the school fees.
The 5 Big Reasons Digital Reinventions Fail:
1. We just want to push the big shiny button
It seems easy to look at the things that are not going well and seek technology fixes or alternatives for them. This is a typical trap executives fall into. “Let’s buy the tech and the rest will follow”. The tech is unfortunately not a silver bullet.
There is no denying the allure of the shiny artificial intelligence (AI), machine learning (ML), automation and data analytics buttons. Of course you should push these buttons, but before you do that, it’s more important to understand what is working in the business, what could be working better and how the introduction of new technologies serves your vision and strategic goals. Asking yourself the question “How is this new technology going to materially solve business problems or improve the lives of customers?” is without a doubt, the right starting point.
Let’s use AI as an example. It’s tempting for consumer-facing organisations to implement AI to automate their customer service without fully understanding its capabilities and limitations, and proper use cases, resulting in a poor user experience. There is a whole set of processes that need to happen behind the scenes to ensure that the necessary technical infrastructure and expertise to support the use of AI is in play. This may involve investing in platforms, as well as training employees on how to use and manage AI systems. There is a deep science around engaging with customers to understand their needs and expectations, and involve them in the design and testing of AI-powered customer experiences.
The effectiveness of AI-powered customer experiences then needs to be continuously monitored, to make adjustments as needed to ensure they are delivering the intended benefits. Implementing the AI tools is the introduction, not the conclusion. The same holds true for almost all technological solutions.
2. Not everyone is on the bus
“Digital transformation is less of a digital problem than it is a leadership problem“ George Westerman from MIT is often quoted as saying. Sustaining a digital reinvention’s impact typically requires a major reset in mind-sets and behaviours, something not all leaders are fully equipped to achieve.
As leaders, your job is to know the way and steer the ship right? Resulting in leadership often feeling they are expected to inherently deeply understand and navigate digital transformation. This is a completely unrealistic and often dangerous expectation. There is significant value in exploring blind spots and actively seeking the support you need to prepare for and deliver against your transformation objectives.
Having a clear strategy of where you want to be and what success will look like is critical. Obvious right? Yet so often, the goal posts change mid game, resulting in misaligned priorities and costly delays. You need to ensure that you drive and communicate the change from the top, that everybody in the organisation understands the strategic imperative.
Often, new digital initiatives are a threat to existing incumbents within your business and it needs to be very clearly understood that you either “get on the digital bus or get out of the way of it”. That message needs to come from the executive team and be consistent throughout the lifecycle of the digital reinvention.
3. Structuring for failure
There are a number of important organisational and structural factors that lead to the success of a digital reinvention.
First, it’s important to create a cross-functional team including members from different departments, as well as external experts and stakeholders. This team should be responsible for driving the digital reinvention and ensuring it aligns with and drives the organisation’s overall vision and objectives.
Second, the team must be empowered to make decisions and take action quickly, without being hindered by bureaucracy or other obstacles. This will require a shift in the organisation’s culture, including a willingness to embrace change and take risks.
Third, the team should be focused on delivering value to the organisation’s customers and other stakeholders, rather than just delivering technology. This will require a customer-centric approach and a deep understanding of the needs and preferences of the organisation’s target audience.
Too often projects are put under I.T. or added as an extension to an existing legacy business division. The key to a successful digital reinvention for a legacy organisation is to create a flexible, cross-functional team that spans the organisation and is empowered to drive change and deliver value to customers.
4. Too much “Big Bang” not enough “slow grind”
Digital reinvention can be hugely complex. The tendency for companies is to try and do it from within, set up huge monolithic projects to make it happen, that generally fail after a long period of time. There is a tendency to think that because the existing business model has been so successful, the digital reinvention has to “get it right first time” and start the cash printing machine from the “get go”.
Instead, it’s useful to take a page out of the lean startup model. Identify the customer need you are solving for and develop a minimum viable product (MVP) that addresses this. Test your MVP, validate your market assumptions, refine and improve. Continuous iteration and optimisation is oxygen to digital cells, enabling you to gain steady traction.
So instead of trying to hit the target with one shot, start small, build the capability and the team, get traction and then scale. Having success in one aspect of the reinvention, even if it’s small, can go a long way to building confidence in the digital team, “build muscle” in the organisation and ensure that costs are controlled on the way to reaching the goal.
5. All gain, no pain
Of course, we all know there is no such thing. Not in sustainable business anyway. Yet, we still see the expectation of immediate return and, more concerningly, the despondency when that return is not realised immediately. Every digital business plan always shows a long investment with a J curve that turns between year 3 and year 5. Yet often, when the digital business KPI’s are not met in year 1, the strategy is questioned. It’s worth applying the Bill Gates’ principle: “Most people overestimate what they can achieve in a year and underestimate what they can achieve in ten years.”
Digital reinvention is a complicated, risky and long-term endeavour. Success lies in investing in empowering and upskilling your people, potentially hiring new talent, committing to often tough change management initiatives and integrating into systems and processes. In other words, a fair amount of pain before the gain.
Pain that is worth it when done intentionally, leading to exponential future-proof growth results.